New mortgage or use savings?

Hi guys,

We've been reading all related threads and cannot decide about what's the best option for us.
In brief - we owe 186k on our cheap tracker. We are buying a new house for 230k which we will rent out for 2 years or so before we do a big renovation job on it. We have 230k in savings. Wondering whether or not we should get a mortgage on the new house or use our savings. Reason for even considering a mortgage is that interest is tax deductible. Appalling at this stuff, thanks in advance if any of you have answers/suggestions from experience.

Wonderer 1 and 2

Only 75% of interest is tax deductible.

Will you not need cash for the renovation?

Just because a cost is (75%) deductible, that's not a reason to incur it. You'll be borrowing at (circa) 5% which is (circa) 3.1% after tax whilst only getting circa 1% on your cash deposit.

Subject to the funding of the renovations, I'd keep around €50k back for emergencies and fund the balance from you savings (i.e. borrow €50k).

Have you approached a bank about a mortgage to begin with and have they confirmed a general amount you would be approved for?

You're all very generous with your replies. Thanks so much. To answer the question by LDhood, no we haven't approached a bank but have a very good credit rating and significant savings so I expect that wouldn't be a stumbling block.

Gordon Gekko, you've answered our burning question. Don't suppose you do independent financial advising?! Looking for someone here. I see a recommendation in another thread. Might go with that. Thanks a mil.

Wonderer

Why are you buying the house now with a view to living in it after three years?

Who is your current lender? If you sell your current home and buy the new house, you will be able to bring the tracker with you depending on the lender.

This is so valuable, that I would suggest that you don't buy a house until you are ready to move into it.

If you want this house and only this house, but can't move into it for three years, you might do a deal with a relative to buy it in their name so that you can buy it from them after three years and move your tracker.

The interest savings will outweigh the 1% stamp duty and 2% legal fees. There could be a CGT bill but you will have that anyway.

Brendan

Thanks a lot, Brendan. I know exactly what you mean - you wouldn't normally buy a house unless you wanted to move into it but this is a house that is being sold by family to pay bank debt. If we miss out now, we can never buy it again. It's a once off too rather than a house in an estate. So that's that part.

We are not ready to move there yet but it will be ideal in about 2 years or so (starting a family). By renting it in the meantime, it allows us time to save for the extension/ renovation which will be c. 180k or at least that's our thinking on it!

KBC is the current lender and I think you are right about them allowing people to move trackers. I understand what you mean about the value of the tracker. It has worked out very well for us.

I misrepresented our mortgage in my OP - It's 286k & the savings amount is 230k.

The house we plan to buy is a 2 bed and whilst it's in perfectly good order and was only recently renovated, we plan to invest 180k to make it into a comfortable 4 bed.

Thanks for taking the time to read this.